Losses of the state power distribution companies (DISCOMs) down 70 per cent, marked reduction of 5 per cent in the aggregate technical and commercial (AT&C) losses, and a near 60 per cent improvement in the most important operating ratio of DISCOMs – the unitised gap between the average cost of supply and average revenue realisation: that’s the impressive report card of UDAY, or the Ujwal Discom Assurance Yojana announced by the then power minister, Piyush Goyal, in early November 2015.

At the time of launch, UDAY was written off as yet another central government financial engineering programme to rescue the perennially loss-making, debt hit, poorly-managed state DISCOMs. To be sure, UDAY did have an important component of financial engineering, which converted the accumulated debt of the DISCOM to state government debt via one-time issuance of special bonds. But UDAY was different from the past such interventions made in 2003 and 2012. Swarajya covered the features of UDAY in detail when the programme was launched. An important part of UDAY was to fix operational improvement accountability for the states. This aspect was largely ignored by a wide section of power sector commentators and national media analysing UDAY.

Just over two years after a bulk of the states signed up for UDAY, the results are showing up. As per the provisional March 2018 data available on the UDAY portal, several states have indeed shown tremendous improvement on the urgent items.

About 86 per cent of the total bond issue needed to transfer the high cost DISCOM debt to lower cost state government debt has been completed. Twenty-five of the 27 states have set in some level of tariff revisions to accurately reflect their cost of operations in their customer facing businesses.

The central government has also progressed on its part of the deal. A full rural feeder audit has been undertaken to understand where the billing gaps are. Sixty-three per cent feeder segregation between urban and rural feeders is completed, which will eventually help more efficient power transmission and make it possible to use different power generation sources for different usage requirements.

The distribution transformer metering (DT metering) is progressing too – 59 per cent of the urban and 52 per cent of the rural work is completed. DT metering is crucial to understand where power theft occurs in the electricity distribution network, and helps in better energy accounting and power supply reliability.

The three key improvement areas are a culmination of this multi-pronged operational efficiency improvement focus.

The accumulated losses are down 70 per cent to about 1.73 lakh crore in 2017-18 because of two factors. Firstly, as the DISCOM debt was moved to state government books, the cost of debt servicing for DISCOMs has significantly reduced. Secondly, due to reduction in the unitised gap between the average cost of supply (ACS) and average revenue realisation (ARR), the pace of making new losses has reduced.

The AT&C losses, often a euphemism for power theft reflecting poor power infrastructure, DISCOM governance, and state policing are now at 18.74 per cent. This figure was almost 24 per cent when UDAY was launched. The best performance on reduction of AT&C losses came from Manipur (12.5 per cent improvement), J&K (7 per cent), Assam (7 per cent), Rajasthan (6.5 per cent) and Bihar (6 per cent). Five states – Uttarakhand, Tripura, Punjab, Madhya Pradesh and Mizoram saw AT&C losses increase. Madhya Pradesh, which saw a deterioration of 4.8 per cent in AT&C losses ascribes this spike to increased rural power supply in rain deficient regions. Nonetheless, this is an area of ongoing work for each state.

In absolute terms, Bihar (33 per cent, down 6 per cent), Uttar Pradesh (28 per cent, down 2.2 per cent), Haryana (20 per cent, down 5 per cent), and Rajasthan (just under 20 per cent, down 6 per cent) showed significant movement on curbing power theft and making consumers accountable for paying for their power usage. With significant improvement opportunity still existing in these large states alongside Madhya Pradesh (just under 30 per cent), there’s still work cut out to reach the 15 per cent AT&C levels, which are the bare minimum required for DISCOMs to run stable businesses.

The tariff cost gap (difference between ACS and ARR) reduced at the fastest pace ever in the financial year 2017-18. After the UDAY launch, the gap has narrowed by 3 per cent (2015-16), 18 per cent (2016-17) and 48 per cent (2017-18). The last year improvement comes on the back of tariff hikes by most DISCOMs. Better metering and revenue realisation itself also helped reduce this gap.

All these improvements also reflect in how DISCOMs deal with power generation players. On an average, the account receivables for power generation firms fell by 8 per cent between the financial years 2016-17 to 2017-18, while the number of days these receivables stand outstanding reduced by 13 per cent. This improvement demonstrates that DISCOMs, who buy power from these generation players are paying them more regularly and faster.

As the benefits of UDAY-driven efficiency improvements kick in, the good news for DISCOMs is that there is still a large room for further progress.

The central government firm Energy Efficiency Services Limited is working to procure almost 250 million smart meters and help DISCOMs install them for their large customers. Billing efficiency and potential time of day billing structures can help both DISCOMs and the end customers. Smart metering was also a key aspect of UDAY design, but the progress on this front has been slower compared to other areas. So far, less than 1 per cent of the target for smart metering has been achieved, but pace should pick up in the current financial year.

The current Power Minister R K Singh has suggested that power tariff determination should account only for 15 per cent AT&C losses after March 2019. This means that the inefficient DISCOMs will have to work really hard to hit the 15 per cent. Cost of losses over 15 per cent will not be allowed to be passed on to the customers and will directly hit the DISCOM books. This measure is expected to nudge DISCOMs into taking a hard look at their operations.

The central government also wants any state government power subsidies to directly go to the customer accounts via direct benefit transfers (DBT). Currently, states promise cheap per unit power to the consumers and then delay the subsidies to the DISCOMs, which get paid by the end customers at a lower rate. If DBT is used, the state governments will have to pay the consumers directly, who will then pay a fraction of the transferred amount to DISCOMs. This measure will ensure that political parties do not make unreasonable promises to the citizens, and later avoid paying subsidy differentials to the discoms.

The power distribution sector clean up is well and truly on. Bulk of the credit for this goes to Minister Piyush Goyal, who pushed through transformational ideas which made states more accountable both financially and operationally. He ensured that state governments did not leave their respective DISCOMs orphaned, while making unreasonable promises to the voters. There’s still a big distance to cover but the central government has lined up a series of levers to employ as this DISCOM clean up continues.

All these measures will still only bring DISCOMs to a capability level, where they can keep their lights on and strike a balance between their utility role and running a consumer business. The elephant in the room is to ensure round-the-clock, round-the-year power availability to all consumers – residential, industrial and agricultural – in a reliable and affordable manner.

Despite India reducing the gap between power demand and power generation to just 1 per cent, our cities still do not get 24×7 power. The reason is the creaking urban power infrastructure. The DISCOMs have hardly any money to invest in maintaining, let alone completely renovating the power equipment which makes the last-mile supply possible. Currently, the UDAY induced improvements are guiding DISCOMs towards bare minimum operating profitability. Their capacity to invest afresh and invest big is still and will remain poor, even with the full UDAY benefits kicking in.

This next problem has two potential solutions – large scale privatisation of DISCOMs across states and creation of a national DISCOM for improving investment efficiencies with greater gentral government say. The former is a political non-starter as the experience of the past 15 years shows. The latter is another new idea that is doing rounds in Delhi.

Further improvement of state DISCOMs’ health can help the central government expedite a movement towards this national DISCOM. A follow up article will explain how this national DISCOM can transfer the power generation, transmission and distribution improvements made by this government to the end customer.

That we have reached this point is a testimony to the success of the central investments and a participatory and federal environment created by the Narendra Modi government under the UDAY programme.

Source: https://swarajyamag.com/infrastructure/impressive-uday-report-card-energising-state-owned-power-discoms

Good afternoon friends. As you know the Union Cabinet met this morning and they have taken some important decisions. To brief you on those, we have with us Hon’ble Minister for Railways, Coal, Finance and Corporate Affairs, Sh. Piyush Goyal Ji. A warm welcome to you sir! You can brief now sir. Thank You.

Thank you Mr. Kar! Today, important decisions relating to the petroleum sector, exports and the ethanol industry where the sugar industry, India’s imports of diesel – it has a very holistic dimension – were all finalized in the Cabinet. On the export front, I am delighted to share with you that the Cabinet has decided to increase the allotment of capital, enhance the capital base of ECGC, the Export Credit Guarantee Corporation, by Rs. 2,000 crore.

Last year, Rs. 50 crore was given as capital to ECGC but with the growing export numbers and you are well aware that the export growth this last two months has been very robust. We realized that there will be greater demand for export credit insurance, and therefore, in the current year, the government will be providing Rs. 1,450 crore as additional capital to ECGC and next year, another Rs. 500 crore, 50 having already been given last year. So, Rs. 2,000 crore infusion of capital has been approved for ECGC.

It will align it with the best practices that RBI has stipulated. It will also give it more headroom to write policies for supporting our export thrust. It will expand its role in the ever-growing export basket, and particularly, for the focused countries where we are making effort to increase exports. This increased ability to write insurance policies will be a great support to the exports sector.

Simultaneously, the government has also been working to promote project exports and I am delighted to share with you that the Cabinet today has approved overall additional institutional support or grant support to the National Export Insurance Account. It’s a trust that was formed, the NEIA trust, which writes insurance policies for project exports.

So last year, Rs. 440 crore was given to the NEIA trust in anticipation of approval. This year, we will give another Rs. 300 crore and next year, another Rs. 300 crore, making it a total of Rs. 1,040 crore additional grant in the form of capital for the NEIA trust to support project exports.

Many of you may be aware that the idea of having a strategic storage has been discussed in the country for over 12 years now. It was first decided, actually 14 years, it was first decided when Mr. Atal Bihari Vajpayee was the Prime Minister during NDA-I on the 7^th of January, 2004 that considering India’s high import dependence for oil and gas and in the interest of meeting the objective of India’s energy security, we should take up the construction of crude oil reserve facilities as a buffer to deal with any situation of supply chain disruption due to external sources. And also in exceptional circumstances, we can use this buffer stock of oil to insulate India from abnormal spikes in the global oil prices.

While the original expectation and approval in 2006 was given for storage of about 27 days of oil reserves, which was the assessment carried out at that time, we only saw one strategic reserve come up before 2014, and sadly, even that was not provided the capital support and funding to fill up the oil reserves in that storage facility.

The government under Prime Minister Modi has on 25^th January, 2017 signed a definitive agreement on oil storage and management with Abu Dhabi National Oil Corporation of UAE, under which one of these two SPR caverns at Mangalore having capacity of 5.86 million barrels would be filled up by their crude.

So, they would be funding this and a mechanism has been created that 50% of the quantity will be the minimum strategic quantity, 15% shall be additional strategic quantity and the remaining 35% shall be a commercial quantity. Learning from our successful experience of a public-private partnership for building the country’s strategic oil storage, the Cabinet today has given an in-principle approval for establishment of two additional facilities aggregating 6.5 million metric tonnes as strategic petroleum reserves at Chandikhole in Odisha for 4 million metric tonnes and Padur in Karnataka for 2.5 million metric tonnes.

So, additional two more strategic oil reserves at Chandikhole in Odisha, 4 million metric tonnes and Padur in Karnataka, 2.5 million metric tonnes. Creation of both these underground rock caverns strategic petroleum reserves will significantly help India’s energy security and we shall be exploring the PPP mode for executing both these projects for which potential investors will now be approached.

I must also mention about the fourth very important decision taken today on the mechanism for procurement of ethanol by the public sector oil marketing companies. We have had some successes over the last 3-4 years in expanding the ethanol production and blending with imported petroleum products, but we were keen to create a more holistic framework in which the pricing of ethanol over a longer period can be given some stability and predictability, so that we can encourage investments in the ethanol production space.

This programme was again launched by Prime Minister Mr. Vajpayee in 2003 but had languished over the period – 2004 to 2014 – with very small amounts of blending of ethanol actually taking place. After the Modi government came in, we had notified an administered price of ethanol since 2014 and it had significantly improved the supply of ethanol during the past four years.

In fact, the numbers speak for themselves. As against 38 crore litres which was procured by the public sector OMCs in the ethanol supply year 2013-14, it has increased to about 140 crore litres in 2017-18. So, within a span of four years, it’s almost three and a half times. That is the scale of growth. This has helped us to bring down the import of petroleum products. It has also given an alternate revenue stream to the sugarcane industry which indirectly straight away goes to support sugarcane farmers and helps the sugar industry to pay the farmers their dues.

Therefore, along with many other decisions this government has taken for reduction of farmers’ dues in sugarcane. Today, we have decided that we shall have a sustaining formula for deciding the price of B-heavy molasses and sugarcane juice, which was never done before, also to be used for ethanol production. So, for the first time, we have decided on a formula to price B-heavy molasses and sugarcane juice, which will have a positive impact on the capability of sugar industry to pay the farmers’ dues and also increase the availability of ethanol for the ethanol blending programme of the Government of India.

We have also decided that for the forthcoming sugar season 2018-19 during the ethanol supply period from 1^st December, 2018 to 30^th November, 2019, we shall fix the ex-mill price of ethanol derived out of C-heavy molasses at Rs. 43.70 per litre as against Rs. 40.85 at present. So, almost a Rs. 3 increase. In addition, GST and transportation charges will also be paid over and above that.

Similarly, the ex-mill price of ethanol derived from B-heavy molasses. As I mentioned earlier, B-heavy molasses and sugarcane juice was never determined earlier. It’s for the first time we have brought in that in the ambit of ethanol. The price has been fixed at Rs. 47.49 per litre. Again, GST and transportation charges will be paid in addition to that.

These prices of ethanol are based on the estimated FRP for the sugar season 2018-19 and will be modified; we have given authority to the Petroleum and Natural Gas Ministry to modify it as per the actual FRP that may be declared in the future. It’s called B-heavy molasses. It is the first time we are fixing it. Earlier, it was not there at all. Rs. 47.49 per litre, December 2018 to November 2019, that is the ethanol supply year. That’s traditionally the ethanol supply year when both the crops come out.

So, we expect the ethanol availability for the ethanol blending programme to significantly increase due to the higher price for C-heavy molasses based ethanol and the new ability to procure ethanol from B-heavy molasses and sugarcane juice. And our effort is that we must move towards the 10% ethanol blending which will significantly give a leg up or a boost to the sugarcane farmers and also reduce the import bill on petroleum products.

Thank you

Question-Answer

Q: Rs. 3 hike sir. Rs 3 hike in ethanol, who is going to get this Rs. 3 hike. It’s all makers, manufactures……?

A: Logically, it flows to the farmers because if the product is converted to ethanol, a) it stabilizers the excess sugar that’s available in the market and it also helps them to clear the farmers’ dues.

Q: Ethanol is sold to the petroleum industry sir. So, you are charging the petroleum industry this Rs. 3 hike?

A: No, it is still much cheaper than the price that they would be required to pay for the import of petroleum products. That’s right. It is still cheaper than the price for imported products.

जीएसटी तो जो कानूनी है वह लगता है, उसमें तो कोई हमारी कैबिनेट के पास कोई पावर नहीं है उसमें कुछ करने के लिए |

Q: I think this strategic oil reserve concept. It was conceived after the Kargil war and I remember that when this was mentioned that the cost of building the strategic oil reserve at that time was proposed to be Rs. 50,000 crore?

A: 11,000 crore. No, I am sorry I can tell you what it was exactly at that time if you are very interested. The Cabinet had decided, it was decided in 2004, not after the Kargil war, much later, and the expectation was that these strategic reserves as per the CCEA decision of 6^th January, 2006 was to finance the strategic reserves, which would cost about Rs. 11,267 crores based on September 2005 prices. So, it was not 50,000, but what you are talking about, probably, there will be some escalation between 2005 and 2018 but I still don’t think it will go to 50,000 crores.

Q: What is the cost  sir, how much is the expected cost?

A: I think we have today taken an in-principle decision on both these to be constructed. Obviously now, we will now have to do engineering studies, because these are very high quality, highly designed underground caverns, which store these petroleum oils. So, they are extremely complicated engineering designs, which will certainly take some time. Today is the in-principle approval.

Q:

A: Not in today’s Cabinet.

प्रश्न: 2000 करोड़ का जो फंड है, उसमे MSMEs को इसमें कैसे…….

उत्तर: सबसे ज्यादा ईसीजीसी जो पॉलिसीज लिखता है, इंश्योरेंस जो करता है वह सबसे अधिक छोटे उद्योग, लघु उद्योग और मध्यम वर्गीय उद्योग को ही लाभ मिलता है| तो यह जो 2000 करोड रुपए आज ईसीजीसी के कैपिटल में वृद्धि करने का निर्णय लिया गया है यह डिमांड भी तब उठी थी जब टेक्सटाइल सेक्टर वगैरा सबने कहा कि ईसीजीसी कवर होने से हमारे ब्याज के दर भी कम हो जाते हैं, तो इसका सबसे बड़ा लाभ छोटे और लघु उद्योग और मध्यम वर्गीय उद्योगों को होगा|

प्रश्न: ….

उत्तर: नहीं यह इंश्योरेंस पॉलिसी होती है कि अगर आपका जो buyer है जिसको आपने सामान विदेश में दिया अगर वह डिफॉल्ट करता है तो आपको इंश्योरेंस से पूरा पैसा मिल जाता है| तो जो बड़े एक्सपोर्टर होते हैं, बड़े एक्सपोर्टर तो बहुत छानबीन करके बड़े लोगों को बेचते हैं तो कई बार उनको इंश्योरेंस लेने में कोई रुचि नहीं रहती है| छोटे एक्सपोर्टर के लिए पैसा डूब जाए कभी कुछ, तो बहुत बड़ा धक्का पड़ता है इसलिए एक्सपोर्ट क्रेडिट गारंटी कारपोरेशन अधिक से अधिक छोटे और लघु उद्योग और मध्यम वर्गीय उद्योग को सहायता देने के काम में जुटी रहती है तो यह दो हजार करोड़ से सीधा 20 गुना और इंश्योरेंस कवर करने की एबिलिटी बढ़ जाती है ईसीजीसी की और 20 गुना जब वह बढ़ती है, तो सालाना लगभग उसका भी 4 गुना आप इंश्योरेंस पॉलिसीज़ लिख सकते हैं| इंश्योरेंस जो डेटर होते हैं वह कभी एक महीना होता है, 2 महीना, 3 महीना| तो लगभग अगर दो हज़ार करोड़ दिए जाते हैं तो सीधा-सीधा दो लाख करोड़ का एडिशनल इंश्योरेंस कवर छोटे लघु उद्योग को डायरेक्ट इनडायरेक्टली मिल जाता है|

आज सिर्फ कैबिनेट के डिसीजन्स पर|

धन्यवाद!